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UK factory PMI surges to 16-month high, exports recover

[LONDON] British factory activity unexpectedly surged to a 16-month high in October helped by a recovery in export orders, a survey showed on Monday, suggesting economic growth could pick up rapidly in the last three months of the year.

The Markit/CIPS UK Manufacturing Purchasing Managers' Index (PMI) jumped to 55.5 in October from 51.8 in September. That was well above even the highest forecast of 52.5 in a Reuters poll.

The survey indicated Britain's economy could grow twice as fast in the last three months of the year as it did in the third quarter, data compiler Markit said, although many economists will wait for Wednesday's survey of the much bigger services sector to get a fuller picture of the pace of recovery. "The survey is consistent with a quarterly rate of growth of around 1 per cent, a vast improvement on what we have seen in recent months," Rob Dobson, senior economist at survey compilers Markit, said.

"The revival of overseas sales is a particularly encouraging aspect of the latest survey, helping to dispel fears that global demand is slumping and boding well for the outlook." Concerns about an economic slowdown in China and other emerging markets have cast a shadow over the global economy in recent months. In response, investors pushed back their expectations of when major central banks are likely to start raising rock-bottom interest rates.

But Monday's survey showed new export orders increased to their highest level since August 2014.

The survey contrasts with some other measures of the economy. The Confederation of British Industry said last week that factory orders suffered their biggest fall in three years in the three months to October.

Britain's economic growth slowed to 0.5 per cent in the July-September period, preliminary official data showed earlier this month, hurt in part by a contraction in the manufacturing sector for the third quarter in a row.

Monday's survey showed a measure of manufacturing output rose to 58.3 in October - another 16-month high - while new work given to UK manufacturers rose to 56.9, its highest level since July last year.

Despite the brighter picture it painted of the economy, the survey may do little to change the likelihood of the Bank of England keeping interest rates unchanged for a while yet.

The BoE is expected to say on Thursday it is keeping rates on hold at their record low of 0.5 per cent.

While employment in the manufacturing sector rose to its highest level in more than a year, the prices subindex remained below 50-point line that separates contraction from growth, suggesting the pick-up in manufacturing output will not be inflationary.